The Fatal Flaw in the Fed’s Plans to Socialize Markets

There is one fatal flaw in the Fed’s plan to socialize the financial markets.  The answer may surprise you.

But first I have found no more powerful description of the current threat than the words of Steven Vincent in his Bull Bear Trading Blog.  Here are a few particularity poignant extracts:

We have to first wrap our minds around the basic facts of recent events.  The most essential fact is that the U.S. and global economy is now in receivership.  It has been declared insolvent and shut down.  The receiver is the Central Banking Authority.  The maintenance and operation of all economic (and by extension, political and social) mechanisms is now in the possession of the fundamental power to create money.  By fiat power, the entirety of economic activity has been extra-legally declared to be under the direct and ultimate purview and responsibility of the Money Power.

This is nothing short of a coup.  The seizure of ultimate power by extra-legal means under the mantle of presumed and unchallenged authority and the cover of fear.

The Federal Reserve Bank, as the issuer of the global reserve currency, and its associated global central banks, have unilaterally granted themselves the power to issue any amount of currency.  They have declared the power to buy and sell with literally unlimited artificially-created funds in any market at any time for any reason.  They have issued the edict that all bankruptcy, all default and all consequence for any misallocation of resources is illegal and null.  Any form of speculation and financial engineering, whether in the past, present or future, has been sanctioned and authorized.  Those without access to the spigots of central bank liquidity will receive subsistence levels of Universal Basic Income.

There are no more free markets.  There is no capitalism.  If there is an actor in the markets which can intervene in any way at any time for any reason in any amount without any process of authorization then there are no markets.  There is only pure, centralized, fiat power.

… To reiterate, it has been declared illegal, punishable by bailout, for any significant entity to default or go bankrupt. No failure will be allowed. The house has literally unlimited funds and it will not allow anything other than a relatively smooth transition to the new technocratic future. There is no limit in quantity and means and method and there is no expiration date to this fiat power.

The Fatal Flaw


The fatal flaw is this: the Fed’s plans rely on the ability to issue money.  Without this ability there is no control.  As Vincent says:

By fiat power, the entirety of economic activity has been extra-legally declared to be under the direct and ultimate purview and responsibility of the Money Power.

At first sight this fiat power looks overwhelming: 

They have declared the power to buy and sell with literally unlimited artificially-created funds in any market at any time for any reason.

But it is not. 

Remember the story of the Emperor’s New Clothes?  Like the Emperor the Federal Reserve have fooled themselves into believing they can control the economy and by extension society through fiat money.

Because the Emperor and his advisors believe in his new clothes so does the majority of the population that line the streets cheering him and admiring the fabrics as he parades pass.

It takes a child who knows no better to point out “But he has got no clothes on.”   The truth breaks the fantasy bubble and the Emperor beats a hasty and embarrassed retreat.

People Create Value
 

Contrary to what most people currently believe money is, like language a human artefact.  Only people give value to money.  When that value is taken away the money becomes worthless. 

On the Pacific Island of Yap there are large circular stones with holes in the middle that once served as money.  When people stopped believing they had value they became just stones again.

Yap stone money pic
Source: https://www.npr.org/sections/money/2011/02/15/131934618/the-island-of-stone-money

The same is true for the US dollar and every other currency or financial asset – their value ultimately depends upon people believing that they have value.   

This very simple and obvious truth is the fatal flaw in the Fed’s plans - the current socialisation of the markets and concentration of power depends upon people continuing to believe in the US dollar

Remove the belief and the Federal Reserve can issue as many dollars as they like and it will have no more effect than showering the world with Monopoly money.

People create monetary value, nobody else.  When the acceptance of value is removed the value disappears.

Fear
 

The primary mechanism used to maintain belief in the dollar is fear. 

$ value = belief = fear.

People and organisations feel dependent upon the US dollar.  Dependency creates demand enabling the Federal Reserve to issue unlimited supply without generating inflation. 

Demand falls when people release their fear and no longer believe in the actions of the Federal Reserve or the value of the money they issue.

Waking Up
 

Once we wake up to the fact that people, not central banks give value to money a number of consequences follow:

We are responsible – if only we give value to the USD we are implicitly sanctioning the actions of the Federal Reserve and the centralised totalitarian society their policies are creating.  Radical self-responsibility ends the delusion that money has value outside our acceptance of that value. 

We are creators – if the USD has value because we accept is has value then we, not the government or central banks are the creators of that value.  When we forget this creative ability we forfeit it to an external authority.  If we want a different future than the one being proposed we are being asked to re-invent ourselves with a new self-image.  I am reminded of the poem by Marianne Williamson:

Our Greatest Fear

Our greatest fear is not that we are inadequate,
but that we are powerful beyond measure.

It is our light, not our darkness, that frightens us.
We ask ourselves, Who am I to be brilliant,
gorgeous, handsome, talented and fabulous?

Actually, who are you not to be?
You are a child of God.

Your playing small does not serve the world.
There is nothing enlightened about shrinking
so that other people won't feel insecure around you.

We were born to make manifest the glory of God within us.
It is not just in some; it is in everyone.

And, as we let our own light shine, we consciously give
other people permission to do the same.
As we are liberated from our fear,
our presence automatically liberates others.

Inflation is the withdrawal of belief – when a currency inflates it is because people no longer believe in its efficacy.  Usually the trigger of this loss of belief is government and central bank excesses.  

Bear markets are also the withdrawal of belief – within the context of the present socialised markets a bear market has nothing to do with the fundamentals which have long disappeared but loss of confidence in the Federal Reserve.  Market corrections therefore can also be seen as the withdrawal of belief.

End Game

 

The fatal flaw reveals the present crisis to be one of belief:

What do I believe about myself? 

What do I believe about the Federal Reserve?

Who gives value to the US dollar?

The battlefield is the financial system.  Two indicators of people waking up to their own creative abilities are inflation and bear markets.

The withdrawal of value from the US dollar leaves the Federal Reserve with no recourse.

There is a saying that we learn the most from our enemies.  What is the present crisis teaching us and will we have the courage to pull through?

I would be interested in hearing from anyone wishing to create decentralised stable currencies as a viable alternative.

More about Robust Finance.